by: Henry Meier
It is with gritted teeth that I congratulate Congress this morning for passing legislation (HR 3468) providing Share Insurance Coverage to credit unions holding Interest on Lawyer Trust Accounts (IOLTA). Passage of the bills means that credit unions in New York will be able to accept these accounts provided membership requirements are satisfied.
For those of you responsible for implementing these kinds of changes, take a look at section 497 of New York’s Judiciary Law. IOLTA are accounts opened by attorneys holding funds received from members, typically as part of a retainer agreement. Under New York’s law, which is similar to the requirements of other states, when an attorney receives funds from a client in a fiduciary capacity that are too small an amount or are expected to be held for too short a time to generate sufficient interest income, the attorney places these funds in a single joint account.
The catch is that NCUA has refused to extend Share Insurance Coverage to IOLTAs. NCUA has opined for years that Share Insurance protection can only be extended to such funds if all of a lawyer’s clients are qualified members of a credit union. This is because membership eligibility is determined not by the attorney but by his clients. The federal law would now stipulate that “if the attorney administering the IOLTA or the escrow agent administering the escrow account is a member of the insured credit union in which the funds are held” then insurance coverage must be extended provided that doing so in consistent with state law. Under Section 497 of New York’s Judiciary Law, it would be. For those of you designated as low-income, you could already accept these funds as explained in this opinion letter.continue reading »